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Investment risks

Investment risk is the degree to which investment returns fluctuate over time, including the likelihood of negative returns over shorter periods. Generally, the higher the investment risk, the higher the potential return but also the higher chance that there will be short-term fluctuations in the value of the investment. However, investment risk can be reduced by holding a spread of individual investments across different asset classes. Each asset class carries its own levels of risk and return. By holding a spread of investments, when an investment or asset class falls in value, other investments or asset classes may offset the falls.

For employer-sponsored members who do not select an investment option, their account balance will be invested in the MySuper balanced option. There is a risk that the MySuper balanced option may not be consistent with member's personal investment objectives, financial situation or needs. Personal and spouse members must advise the investment option in which they want their super to be invested. Contributions may be refunded if no advice is provided.

legalsuper may discontinue an investment option that you have previously selected. There is a risk that any reallocations may not be consistent with your personal investment objectives, financial situation or needs. However, by becoming a member of legalsuper, you agree that we can make these reallocations.

The most significant investment risks include those that relate to:

• Valuation risk – the value of an investment can fall over time, driven by many factors including:

- Less frequently valued assets - unlisted infrastructure and property investments are held by legalsuper via pooled investment vehicles and are valued using the unit prices issued by the applicable investment manager. These investment managers have adopted valuation policies that require the periodic re-valuation of individual assets held by the pooled investment vehicle.- redemption/switching risk – in the event that underlying investments cannot be redeemed or properly valued, legalsuper may delay the processing of a request to withdraw or switch investments;- market risk – risks associated with investing in a certain investment market which are driven by economic, technological, political or legal conditions, or even market sentiment;- currency risk – value of overseas investments may change due to changes in the value of the currencies of those countries;- interest-rate risk – changes to interest rates may have a negative impact on investment values or returns;- derivatives risk – there are various risks associated with the use of derivative products. Derivatives are used to reduce risk or gain exposure to other types of investments when appropriate. Risks associated with these derivatives include the value of the derivative failing to move in line with the underlying asset, potential illiquidity of the derivative, not being able to meet payment obligations as they arise, and counterparty risk (this is where the counterparty to the derivative contract cannot meet its obligations under the contract).

• Liquidity risk – some investments such as property and infrastructure are relatively illiquid, that is, they are not readily converted to cash. legalsuper makes long-term investments, and has regard to the extent to which any investment may or may not become illiquid to manage the potential risks that may arise.

• Inflation risk – the value of your retirement benefit should at a minimum keep up with the cost of living, so that the purchasing power of your retirement benefit is not reduced over time. legalsuper has designed investment options to exceed inflation over the medium to long-term.

legalsuper utilises specialist investment professionals, including investment managers and an asset consultant, to take into consideration and assist with the management of these risks.

The level of risk will depend in part on your choice of investment options. legalsuper provides a number of investment options with a mix of investments designed to provide particular risk and return characteristics.

Past performance is not necessarily indicative of future performance. As you bear the risks associated with the investments you choose, we recommend that you seek licensed investment advice before selecting your investment option and strategy.

Your investment in legalsuper is not guaranteed. The value of your investment can rise or fall. Due to the volatility of investment returns and the costs associated with investing in superannuation, it is possible that you could get back less than you paid into legalsuper.

The Trustee recognises the importance of accuracy of unit pricing and the risks surrounding the process, especially when a significant event occurs such as:• significant market movements;• suspension of trading;• large cash flows;• investment manager product closure; or• a material or significant event which results in the inability to access meaningful market values for a period of time.

The Trustee’s policy provides that where:• there is a disruption to the information flow required to establish either assets or liabilities;• markets on which assets are traded are closed or restricted and market prices cannot be established• valuations in good faith cannot be established; or• when there is a significant movement in investment markets and to process transactions could have a potentially detrimental effect on members, the Trustee has the power to suspend transactions until the valuation of assets and liabilities can be determined.